WEBVTT - Cathie Wood Sees Bitcoin Going to $500,000 0:00:00.120 --> 0:00:03.320 Hi everyone. I'm Carol Masser Bloomberg, Business Week, Radio and TV, 0:00:03.520 --> 0:00:06.920 and I'm delighted to bring in Kathy Would. She's the founder, CEO, 0:00:07.120 --> 0:00:11.000 and chief investment officer of ARC Investment LLC. She is 0:00:11.039 --> 0:00:14.280 someone who is well known to our audience. Her consistent 0:00:14.280 --> 0:00:17.280 performance since she started ARC about seven years ago has 0:00:17.280 --> 0:00:20.640 certainly given her a lot of notoriety. Kathy, first of all, 0:00:20.680 --> 0:00:22.919 thank you for joining us. I know it's a crazy day. 0:00:22.960 --> 0:00:26.520 We're all watching the markets. We're all watching bitcoin in 0:00:26.520 --> 0:00:29.920 a big way. The crypto market is coming undone last 0:00:29.920 --> 0:00:34.239 trade was about thirty five thousand on bitcoin. What's happening 0:00:34.320 --> 0:00:37.840 right now and how low do you think it can go? Well, 0:00:37.880 --> 0:00:41.280 I think we're in a risk off period and for 0:00:41.280 --> 0:00:43.479 for all assets. If you if you look at the 0:00:43.960 --> 0:00:47.440 stock market, the more risky or volatile parts of the 0:00:47.479 --> 0:00:50.800 market have come in dramatically since mid February. And I 0:00:50.840 --> 0:00:54.160 think a lot of the concerns have been around inflation. 0:00:54.320 --> 0:00:58.400 Initially that was helping bitcoin because obviously Bitcoin is in 0:00:58.440 --> 0:01:01.720 a very important inflation hedge. You know, it's a it's 0:01:01.720 --> 0:01:05.720 a rules based monetary policy, the first global rules based 0:01:05.760 --> 0:01:10.440 monetary policy we have ever had. Hugely important reserve currency 0:01:10.520 --> 0:01:14.640 of the crypto acid ecosystem. But I think what's happening 0:01:14.720 --> 0:01:18.200 right now is because the stock market, the highly volatile 0:01:18.240 --> 0:01:21.399 part of the stock market, the innovation oriented part of 0:01:21.440 --> 0:01:24.400 the stock market, has gone through such a correction which 0:01:24.480 --> 0:01:29.120 has been flamed by inflation fears. I think, I think 0:01:29.120 --> 0:01:33.200 the correlations among volatile assets are going to one right now, 0:01:33.240 --> 0:01:36.320 and that's including bitcoin. Well, I want to unpack a 0:01:36.360 --> 0:01:38.800 couple of things. So bitcoin, I mean you, at one point, 0:01:38.800 --> 0:01:40.880 I think back in April told Dow Jones that it 0:01:40.920 --> 0:01:43.880 could go to about five thousand dollars. Do you still 0:01:43.920 --> 0:01:46.080 hold that target? Do you still think that's where we're headed? 0:01:47.040 --> 0:01:50.560 I we do. I do, yes. Cn L. Mandra is 0:01:50.800 --> 0:01:54.760 our crypto analysts, and and uh we we go through 0:01:54.800 --> 0:01:57.600 soul searching times like this and and scrape the models, 0:01:57.600 --> 0:02:00.680 and yes, our conviction is as high. The one thing 0:02:00.720 --> 0:02:05.840 that has changed here, however, is the environmental concerns around 0:02:06.320 --> 0:02:11.760 bitcoin in particular, have caused people like Elon Musk to 0:02:11.880 --> 0:02:13.919 pull away and say, who wha what whoa? Let me, 0:02:14.320 --> 0:02:18.280 let me, let me make sure I understand this. And uh, 0:02:18.400 --> 0:02:21.400 we believe that even this is going to change because 0:02:21.440 --> 0:02:25.079 first of all, right, now, UH, the percentage of bitcoin 0:02:25.160 --> 0:02:30.200 mind with renewables and hydroelectric power is quite substantial. I 0:02:30.240 --> 0:02:34.919 think in China it's over fifty in renewables. UH. And 0:02:35.000 --> 0:02:39.200 we also believe UH and we wrote a paper in 0:02:39.280 --> 0:02:42.680 conjunction with Square on this and we're going to have 0:02:42.960 --> 0:02:47.840 a conference about it in July. We believe that bitcoin 0:02:48.000 --> 0:02:53.160 mining integrated into the distributed grid, and by that I 0:02:53.200 --> 0:03:00.680 mean solar roofs, power walls in homes. UH, utilities, power 0:03:00.760 --> 0:03:06.359 producers starting to include bitcoin mining in the ecosystem. Why 0:03:06.400 --> 0:03:09.520 would they do that? They would do it because renewables 0:03:09.680 --> 0:03:14.880 are intermittent power sources, right, whether is it sunny or not, 0:03:15.400 --> 0:03:19.800 wind is it windy or not? And bitcoin mining could 0:03:19.840 --> 0:03:24.440 take off if it's If there's excess energy uh from 0:03:24.639 --> 0:03:28.519 solar being loaded into power walls, it can be offloaded 0:03:28.520 --> 0:03:32.800 into bitcoin mining and the whole ecosystem therefore becomes much 0:03:32.800 --> 0:03:37.280 more economic if this happens. We believe that the the 0:03:37.640 --> 0:03:42.120 adoption of solar is going to accelerate dramatically because there's 0:03:42.120 --> 0:03:47.200 another profit center associated with it, bitcoin mining. Well, what 0:03:47.320 --> 0:03:49.040 happens though in the meantime, so here we are at 0:03:49.080 --> 0:03:51.600 thirty five thousand, Kathy, do you think we go much 0:03:51.600 --> 0:03:55.920 lower from here? Uh? You never know how low is low. 0:03:55.960 --> 0:03:59.560 When a market gets very emotional, A lot of traders 0:03:59.720 --> 0:04:03.520 see bitcoin dropping below the two under day moving average, 0:04:04.320 --> 0:04:08.760 which is which was a uh so traders once that happened, 0:04:08.840 --> 0:04:12.600 they just dumped. Some just dump and run. I think 0:04:12.640 --> 0:04:17.160 we're in a capitulation phase. Ya. Seen has a dashboard. 0:04:17.200 --> 0:04:19.760 We were looking at all the indicators this morning. They 0:04:19.760 --> 0:04:24.000 are all suggesting that we are in the capitulation phase, 0:04:24.360 --> 0:04:28.919 which is a really great time to buy, no matter 0:04:29.000 --> 0:04:33.120 what the asset is. A capitulation phase is by it's 0:04:33.160 --> 0:04:36.800 on sale now. Am I saying thirty five thousand is 0:04:36.839 --> 0:04:39.719 the low? You know, if traders and there are a 0:04:39.720 --> 0:04:44.040 lot of speculators in in bitcoin, if they are running 0:04:44.080 --> 0:04:47.159 for the hills just because bitcoin has broken through a 0:04:47.200 --> 0:04:50.400 moving average that is important to them. It could continue. 0:04:50.480 --> 0:04:53.440 But all of our indicators are saying this is capitulation 0:04:53.560 --> 0:04:56.160 right now. Do you have a low point on your 0:04:56.160 --> 0:05:03.000 model for bitcoin? No, these metrics are are more a measure. 0:05:03.040 --> 0:05:09.080 Are we in a truly capitulation phase? And it's very detailed. Yes. 0:05:09.080 --> 0:05:12.719 Seen uses on chain analysis, which this is the only 0:05:12.760 --> 0:05:15.479 asset where you can see exactly who's doing what, when, 0:05:15.680 --> 0:05:19.680 why and how, and all of those metrics are saying 0:05:20.120 --> 0:05:23.360 this is a capitulation. This is as as bad as 0:05:23.400 --> 0:05:29.400 it got during the coronavirus crisis. So what about systemic concerns? 0:05:29.400 --> 0:05:31.600 And I'm not talking about bringing down the financial system, 0:05:31.600 --> 0:05:34.039 but you know, more and more of kind of the 0:05:34.200 --> 0:05:38.200 establishment are getting involved in bitcoin. A lot more companies 0:05:38.240 --> 0:05:41.280 have bitcoin on their balance sheet. Should we be concerned 0:05:41.279 --> 0:05:46.520 about their exposure? Tesla for one, but others yes, yes, 0:05:46.680 --> 0:05:50.480 well they're usually in the case of Square and Tesla, 0:05:50.560 --> 0:05:54.360 there between five and eight percent of their cash is 0:05:54.520 --> 0:05:59.200 in bitcoin. So I don't think so that's no cause 0:05:59.240 --> 0:06:02.520 for concern. I'm think about it. We were worried that 0:06:02.880 --> 0:06:06.039 Tesla would run out of cash. Of course ARC was 0:06:06.160 --> 0:06:09.120 not worried, but the world was worried two years ago 0:06:09.160 --> 0:06:11.159 that it would run out of cash. It has so 0:06:11.240 --> 0:06:14.640 much cash now that has the luxury to put five 0:06:14.720 --> 0:06:19.480 to eight percent in in Bickwood. So, uh. Micro Strategy 0:06:19.560 --> 0:06:22.080 is another company. It has almost all as cash and bitcoin. 0:06:22.279 --> 0:06:25.680 That's that's perhaps something prints you know, But as I said, 0:06:25.720 --> 0:06:28.960 if we are in the capitulation phase, we shouldn't be 0:06:29.000 --> 0:06:33.160 worried about micro strategy either. Uh. We do believe this 0:06:33.440 --> 0:06:37.800 is a new asset class and that institutions they are 0:06:37.920 --> 0:06:41.719 looking at it right now because the correlations of relative 0:06:41.760 --> 0:06:46.320 returns and total returns to compare to other asset classes 0:06:46.440 --> 0:06:50.360 tends to be very low over time, and so they 0:06:50.400 --> 0:06:52.839 have to look at it now. E s G might 0:06:52.880 --> 0:06:58.280 prevent a move in wholesale, but we do believe that 0:06:58.480 --> 0:07:03.359 once they understand how renewables are becoming incorporated into the 0:07:03.400 --> 0:07:08.640 bitcoin mining ecosystem uh, and that bitcoin mining might accelerate 0:07:08.680 --> 0:07:13.040 the adoption of solar UH. And I think Ellen will 0:07:13.080 --> 0:07:15.720 come back and be a part of that ecosystem as well. 0:07:16.640 --> 0:07:18.600 So why do you think he came out and said, 0:07:18.640 --> 0:07:22.640 wait a minute, maybe I'm going to back off a bitcoin. Um. 0:07:22.680 --> 0:07:26.360 What do you think his concerned was? What was his nervousness? Well, 0:07:26.400 --> 0:07:30.960 I think he moved in because he's been thinking, watching 0:07:31.000 --> 0:07:35.240 like we all have, basically unhinged monetary policies. They're not 0:07:35.360 --> 0:07:40.920 tied to anything anymore. Whereas bitcoin is mathematically meter to 0:07:40.920 --> 0:07:44.560 top out at twenty one million units and we're approaching 0:07:44.680 --> 0:07:49.400 nineteen million now, so the scarcity factor should increase and 0:07:49.520 --> 0:07:52.840 support the price. We do believe that is what is 0:07:52.880 --> 0:07:55.320 going to be supporting the price in here. I believe 0:07:55.320 --> 0:07:59.480 what happened after he took the position in bitcoin is 0:07:59.760 --> 0:08:04.200 he got pushed back from institutional shareholders like black Rock. 0:08:04.400 --> 0:08:07.360 If you've got Larry Fink, you know, beating the drum 0:08:07.480 --> 0:08:12.680 on climate change as one of the most important topics 0:08:13.040 --> 0:08:16.800 and problems of our time, Uh, then uh, he was 0:08:16.840 --> 0:08:20.160 going to have to face those sorts of concerns. I 0:08:20.200 --> 0:08:24.440 don't think he expected that. And now that he's sorting 0:08:24.440 --> 0:08:27.880 it out, learning more about the environmental impact, I think 0:08:27.880 --> 0:08:32.800 he'll come back into the mix. We certainly hope he will. Uh. 0:08:32.840 --> 0:08:34.360 I don't know if he's going to be part of 0:08:34.360 --> 0:08:37.079 the conference in in July or not. It would be 0:08:37.320 --> 0:08:40.440 he would be a very good addition because I think 0:08:40.480 --> 0:08:43.200 he would provide both sides of the equation. How quickly 0:08:43.320 --> 0:08:48.280 could the adoption of solar accelerate if we introduced mining 0:08:48.280 --> 0:08:52.000 into that ecosystem? Do you expect a bitcoin e t 0:08:52.160 --> 0:08:54.400 F to get approved anytime soon? And I'm curious if 0:08:54.440 --> 0:08:57.040 you plan to launch a crypto et F anytime soon? 0:08:58.720 --> 0:09:02.320 You know, I think with well now that uh Gary 0:09:02.360 --> 0:09:07.080 Gensler is head of the SEC. UH he's bitcoin friendly. 0:09:07.120 --> 0:09:10.559 We know that he taught a class. Uh. Of course, 0:09:11.040 --> 0:09:13.559 of course is at M I t we're coming back 0:09:13.559 --> 0:09:16.600 to the SEC, so and I think the research um 0:09:17.280 --> 0:09:21.840 uh professionals at the SEC. Uh, they understand bitcoin in 0:09:21.880 --> 0:09:26.360 particular and uh, and I think are much more comfortable 0:09:26.440 --> 0:09:29.200 with it now that we've had several years to digest 0:09:29.280 --> 0:09:31.560 what exactly it is. Go through a bear market, go 0:09:31.600 --> 0:09:33.720 through a bull market, now go through a bit of 0:09:33.720 --> 0:09:39.240 a bear market. I think watching uh, the ecosystem evolve 0:09:39.600 --> 0:09:44.160 and actually become even more anti fragile. You know, we're 0:09:44.200 --> 0:09:47.319 getting some real tests here. And if the system doesn't break, 0:09:47.360 --> 0:09:49.880 and I don't think it will, I think that their 0:09:50.000 --> 0:09:53.719 comfort will increase in a couple of ways. Number One, 0:09:53.800 --> 0:09:58.360 the infrastructure is there, is robust. Number two, the liquidity 0:09:58.400 --> 0:10:02.600 is there. Uh, I don't think. I don't think that's 0:10:02.600 --> 0:10:06.240 going to be disproven here. And number three, the price 0:10:06.360 --> 0:10:10.040 is down from very lofty levels. So hey, why not 0:10:10.240 --> 0:10:14.240 start an et F after a correction in in the 0:10:14.320 --> 0:10:18.600 market than before. So I actually think the odds are 0:10:18.600 --> 0:10:22.440 going up now that we've had this correction. I don't 0:10:22.440 --> 0:10:24.280 know if it's going to be this year or not. 0:10:24.800 --> 0:10:29.320 We here perhaps fourth quarter, but you know we heard 0:10:29.559 --> 0:10:32.319 a third quarter before that, so as we get closer 0:10:32.360 --> 0:10:34.600 to the fourth quarter, will know how much is being 0:10:34.640 --> 0:10:37.440 pushed out. Hey, I want to ask Fee a bit 0:10:37.440 --> 0:10:39.880 more about Tesla. Obviously, you know you've been at their 0:10:39.920 --> 0:10:43.120 front and center years ahead when everybody was turning their 0:10:43.120 --> 0:10:46.640 backs on Tesla taking another hit the news out of China. 0:10:46.800 --> 0:10:48.920 They have certainly had some tough time. Their growth is 0:10:48.920 --> 0:10:53.360 sload substantially. They've had a lot of headaches uh and 0:10:53.360 --> 0:10:56.520 and protests in Shanghai after some accidents with its cars. 0:10:56.960 --> 0:11:02.000 Is the Chinese market at risk for Tesla? I think 0:11:02.120 --> 0:11:06.560 the Chinese mark China is going to favor its local 0:11:06.600 --> 0:11:12.120 producers like Neo and others xpang uh. And I think 0:11:12.160 --> 0:11:17.320 they're granting subsidies to Neo, which is the battery swap company, 0:11:17.360 --> 0:11:20.640 even on its very high end cars, which they are 0:11:20.679 --> 0:11:24.120 not granting to Tesla. So it's obvious, and it has 0:11:24.160 --> 0:11:27.240 always been obvious that China would favor a local producer. 0:11:27.520 --> 0:11:32.280 But what we are seeing from China and particularly Tesla 0:11:32.520 --> 0:11:36.920 is exports into Europe uh where it does not yet 0:11:36.960 --> 0:11:40.640 have a plant. Uh. And what we're hearing is uh, 0:11:40.880 --> 0:11:46.000 the especially in Germany but all over Europe where their 0:11:46.080 --> 0:11:49.320 their standards are extremely high for cars in terms of 0:11:49.360 --> 0:11:55.040 design and performance, that they would prefer cars from Shanghai, 0:11:55.080 --> 0:11:59.040 which is a much newer plant and much more productive, 0:11:59.120 --> 0:12:03.640 much more efficient in terms of these designer perfecting these 0:12:03.679 --> 0:12:07.160 designs than is Fremont. Uh and So I think we're 0:12:07.160 --> 0:12:11.280 seeing a big export market developed from China into Europe. 0:12:11.920 --> 0:12:15.200 Uh and Uh. I think China will like that. China 0:12:15.400 --> 0:12:19.600 wants to be known not for shipping or exporting you know, 0:12:20.120 --> 0:12:23.760 cheap goods, but also high end good So this could 0:12:23.760 --> 0:12:27.840 be the beginning of a trend. So so is China 0:12:28.000 --> 0:12:32.280 risk then for Tesla? I mean as I don't think 0:12:32.280 --> 0:12:34.600 they're going to shut down the factory at all. I 0:12:34.640 --> 0:12:38.040 think that that factory will be much more for exporting 0:12:38.440 --> 0:12:42.840 than we once imagined. I will say that Tesla's cars 0:12:43.200 --> 0:12:48.160 in in China have sold very well until very recently. 0:12:48.640 --> 0:12:53.320 I'm sure the publicity, uh, the publicity it has received 0:12:53.640 --> 0:12:58.400 has cooled cooled uh Tesla's jets in China, but it's 0:12:59.000 --> 0:13:02.840 it's been fortuitous that this export market has opened up 0:13:02.840 --> 0:13:05.839 at the same time. Kept the one thing I want 0:13:05.840 --> 0:13:07.080 to ask you, and we talked about it at the 0:13:07.080 --> 0:13:10.160 beginning inflation, your mentor, you and I talked about this 0:13:10.320 --> 0:13:12.320 just a few weeks ago. Art Laugher, you were in 0:13:12.320 --> 0:13:14.960 your twenties, you know, you were focusing on the economy. 0:13:15.040 --> 0:13:17.280 It was a time where inflation was off the charts, 0:13:17.320 --> 0:13:20.240 and everybody thought it would consistently stay that way. Laugher 0:13:20.280 --> 0:13:23.760 thought differently, And we know well known in the supplied 0:13:23.800 --> 0:13:28.199 side economics. Here we are at another time where the markets, 0:13:28.240 --> 0:13:32.280 the volatility is often guided by our inflation expectations. Is 0:13:32.320 --> 0:13:36.400 inflation going to be a problem in your view? Well, uh, 0:13:36.559 --> 0:13:39.160 we we've been saying for some time, actually since the 0:13:39.200 --> 0:13:42.959 depths of the coronavirus. We were doing YouTube videos, uh, 0:13:43.200 --> 0:13:49.520 saying regularly v shape recovery businesses are way behind consumers. 0:13:49.640 --> 0:13:53.400 Consumers are buying all of these goods. In fact, that's 0:13:53.440 --> 0:13:56.800 all they can do because they're stuck at home. Right, 0:13:57.120 --> 0:14:00.680 So they were buying non durable and durable goods that 0:14:00.720 --> 0:14:05.160 could be shipped to them, right, Uh right, Non, Okay, 0:14:05.280 --> 0:14:08.160 That part of consumption is one third of consumption, and 0:14:08.240 --> 0:14:13.160 a disproportionate amount or percentage of the market basket of 0:14:13.200 --> 0:14:17.280 consumers was in goods. For the past year. Businesses were 0:14:17.559 --> 0:14:21.680 didn't expect it. They were behind even before the coronavirus. 0:14:22.040 --> 0:14:24.280 They had been lagging in terms of capital spending, in 0:14:24.360 --> 0:14:27.480 terms of inventories. They were worried about inverted deal curves 0:14:27.520 --> 0:14:31.120 and China US trade conflict. There were many, many concerns. 0:14:31.120 --> 0:14:34.440 So they've been dragging their feet. They got even further behind. 0:14:35.360 --> 0:14:38.520 Uh and and still haven't caught up. So what's happening now, 0:14:38.960 --> 0:14:44.080 Double triple ordering, maybe quadruple ordering, because they just can't 0:14:44.120 --> 0:14:49.280 get the good companies kind of bying to thank buying. 0:14:49.720 --> 0:14:52.840 And so what I believe is we are setting up 0:14:52.920 --> 0:14:57.640 for a massive period of deflation. Uh Now, let me 0:14:57.720 --> 0:15:02.880 explain that there are three sources of deflation. One is 0:15:03.160 --> 0:15:07.119 when the orders, these double and triple orders are canceled. 0:15:07.520 --> 0:15:12.560 Right now, we have seen lumber correct in the last week. 0:15:13.080 --> 0:15:15.960 I think this is the beginning of that. Copper is 0:15:16.000 --> 0:15:21.680 now starting to correct. And I believe that commodity prices 0:15:21.720 --> 0:15:27.160 went too far too fast as businesses were scrambling and panicking. 0:15:27.280 --> 0:15:30.360 Right they were losing business to competition if they hadn't 0:15:30.400 --> 0:15:33.840 planned their inventories correctly. So that's one source of deflation. 0:15:33.880 --> 0:15:38.080 But that's only cyclical deflation. And we actually didn't expect 0:15:38.080 --> 0:15:41.400 it to start now. We expected it to start later 0:15:41.480 --> 0:15:44.320 in the year. But I guess it makes sense now 0:15:44.360 --> 0:15:48.600 that vaccines are here and consumers are shifting away from 0:15:48.640 --> 0:15:53.520 goods towards services or at the margin. Uh, the writing 0:15:53.600 --> 0:15:56.360 is on the wall. Those are double and triple orders 0:15:56.400 --> 0:15:58.880 are going to be canceled. Prices were too high, and 0:15:58.880 --> 0:16:00.920 we're probably going to see a d up in commodities. 0:16:01.080 --> 0:16:03.320 But there are two other sources of deflation out there, 0:16:03.320 --> 0:16:05.280 and this is what we've been saying for quite some time. 0:16:05.880 --> 0:16:09.880 One has to do with it's a good deflation. It's 0:16:10.240 --> 0:16:15.360 caused by technologically enabled innovation. And we believe when you 0:16:15.440 --> 0:16:21.640 see DNA sequencing costs dropping for every cumulative doubling in 0:16:21.640 --> 0:16:25.640 in genome sequenced, or when you see AI training costs 0:16:25.680 --> 0:16:31.040 dropping thirty seven to fifty per year, these are massive 0:16:31.040 --> 0:16:34.360 deflationary forces that are going to hit every part of 0:16:34.400 --> 0:16:37.840 the economy. AI is going to be everywhere. So that's 0:16:37.840 --> 0:16:42.600 good deflation. Now what's bad deflation. Bad deflation is going 0:16:42.640 --> 0:16:45.040 to hit those companies that are going to be disinter 0:16:45.360 --> 0:16:48.880 intermediated and disrupted by all of the innovation that we 0:16:48.960 --> 0:16:52.040 talk about all the time based on DNA sequencing, robotic 0:16:52.640 --> 0:16:57.200 energy storage, artificial intelligence, and blockchain technology. So companies who 0:16:57.200 --> 0:17:01.080 have leveraged up to satisfy short term or ated shareholders 0:17:01.080 --> 0:17:03.560 who say I want my profits now, I want my 0:17:03.640 --> 0:17:07.159 dividends now, so they buy back their shares, they haven't 0:17:07.200 --> 0:17:10.560 been investing enough in innovation. They are gonna lose if 0:17:10.560 --> 0:17:14.040 they're not lucky, not if there If they are unlucky, 0:17:14.080 --> 0:17:17.879 they will lose their businesses. So, Cathie, what I like 0:17:17.920 --> 0:17:20.040 about you at your consistency and we have been talking 0:17:20.040 --> 0:17:23.840 about these themes right for a long time. Having said that, 0:17:23.960 --> 0:17:26.639 you know, your performance has been really consistent. It's been 0:17:26.680 --> 0:17:29.880 a tougher year this year, and you've had flows out 0:17:29.880 --> 0:17:31.760 of your funds. I was tracking just I think over 0:17:31.800 --> 0:17:34.679 the last week it's almost a billion dollars. So, you know, 0:17:34.760 --> 0:17:37.720 how do you keep your investors kind of energized in 0:17:37.800 --> 0:17:41.840 your philosophy and your thinking and your outlook and confident 0:17:41.880 --> 0:17:44.360 in your strategy, you know, in a moment where there's 0:17:44.359 --> 0:17:48.320 a lot of doubt out there. Yes, well, a couple 0:17:48.359 --> 0:17:52.240 of things, just in terms of flows in our our 0:17:52.280 --> 0:17:55.439 biggest outflows were in March. There are a lot of 0:17:56.080 --> 0:18:00.199 commentators out there, shall I say, screaming about how e 0:18:00.280 --> 0:18:01.840 t f s would have to our our e t 0:18:01.960 --> 0:18:04.160 f s would have to shut down, which is impossible. 0:18:04.480 --> 0:18:07.120 And they just don't understand the E t f uh 0:18:07.160 --> 0:18:10.760 infrastructure surrounding us. Um, it's a beautiful thing. Let me 0:18:10.800 --> 0:18:13.600 tell you, the flows are no problem. Our spreads have 0:18:13.680 --> 0:18:19.040 not moved. But anyway, beyond that, Um, what has happened 0:18:19.480 --> 0:18:23.280 is our price targets for the next five years, that's 0:18:23.280 --> 0:18:28.080 our investment time horizon have not changed, right, Uh, but 0:18:28.640 --> 0:18:31.760 not at all. Yeah. Not. In fact, some of them 0:18:31.840 --> 0:18:35.239 have gone up as quarterly results have come out. Now 0:18:35.280 --> 0:18:37.520 they're not going to change that much because that one 0:18:37.600 --> 0:18:40.160 quarters result is not going to change a five year 0:18:40.240 --> 0:18:43.879 price target by that much. But the forces that the 0:18:43.920 --> 0:18:48.560 coronavirus put in motion supporting all of the innovation, uh, 0:18:48.600 --> 0:18:51.560 that in which we invest, they are not they're not 0:18:51.640 --> 0:18:55.080 looking back. Uh. And so what we are seeing is, 0:18:55.600 --> 0:19:00.000 you know, a thirty to forty discount to peak prices 0:19:00.080 --> 0:19:05.440 in in February for the same price targets. So we're 0:19:05.480 --> 0:19:09.840 looking at this saying, all right, on sale. Innovation is 0:19:09.880 --> 0:19:13.000 on sale. And oh, by the way, the bull market 0:19:13.119 --> 0:19:17.680 has broadened out, it has it is now embracing value 0:19:18.280 --> 0:19:22.120 and more cyclical stocks. So what has happened is the 0:19:22.160 --> 0:19:26.520 bull market has broadened, has strengthened, and that is using 0:19:26.760 --> 0:19:31.199 usually a launching pad for our next move up. This 0:19:31.320 --> 0:19:35.520 happened if I can just say two thousand sixteen, same thing, 0:19:36.200 --> 0:19:42.240 fourth quarter of sixteen, after Trump, against all expectations, was elected. Uh, 0:19:42.480 --> 0:19:45.040 value stocks took off because we're gonna have a big 0:19:45.040 --> 0:19:49.160 cycle tax cuts, right, and our strategy went down. We 0:19:49.160 --> 0:19:53.040 were negative. But what happened was two thousand seventeen was 0:19:53.119 --> 0:19:56.080 one of our best years ever, saved last year. Uh, 0:19:56.200 --> 0:19:59.920 and that's because the bull market had broadened out, include 0:20:00.000 --> 0:20:04.919 did value cyclicals were taking off, and the economy was 0:20:04.960 --> 0:20:08.640 on the end. Our economy is very strong right now, 0:20:09.040 --> 0:20:12.879 and cyclical earnings growth and revenue growth is a competition 0:20:12.920 --> 0:20:15.320 to innovation. But if we're right on what's happening with 0:20:15.400 --> 0:20:19.120 commodity prices right now, and that's going to be extended, 0:20:19.680 --> 0:20:22.440 that is the ticket to the next move in our 0:20:22.600 --> 0:20:25.760 kinds of stocks. Well, it's interesting too, what about the 0:20:25.880 --> 0:20:28.840 the tech underperformance, Kathy, that we've seen how much longer 0:20:28.880 --> 0:20:34.119 do you think you know we see that? Well, you 0:20:34.119 --> 0:20:37.959 can never say when we've hit bottom. I mean, I 0:20:38.000 --> 0:20:42.600 can tell you that the valuations in in our in 0:20:42.800 --> 0:20:48.720 our portfolios would suggest that over the next five years, again, 0:20:49.119 --> 0:20:53.840 if our research is correct, no promises. Uh, we believe 0:20:53.920 --> 0:20:59.000 that our portfolios will more than triple over the next 0:20:59.040 --> 0:21:03.639 five years, so that more than a twenty five compound 0:21:03.720 --> 0:21:07.720 annual rate of return over the next five years. Actually 0:21:07.720 --> 0:21:12.520 it's approaching thirty after today. Uh. So you know I'm 0:21:12.560 --> 0:21:16.480 looking at that with great confidence because these innovation platforms 0:21:16.560 --> 0:21:20.960 have hit escape velocity and they there is no turning back. 0:21:21.000 --> 0:21:25.720 There is no turning back because they are helping businesses 0:21:26.160 --> 0:21:39.679 uh and consumers back. Ye little free Sorry, there we go. 0:21:39.680 --> 0:21:41.639 You're back. Go ahead, No, that's okay, we're phrasing up. 0:21:41.640 --> 0:21:45.080 Go ahead. Please, We're not going back to the old 0:21:45.119 --> 0:21:47.879 world We're not going back to the old worlds. So 0:21:48.359 --> 0:21:51.920 you know, my confidence has only increased in our strategies. 0:21:52.920 --> 0:21:54.560 Can I ask you why did you guys get out 0:21:54.560 --> 0:21:59.440 of Apple? Your position in Apple? Okay, what we do 0:21:59.560 --> 0:22:03.280 when a bull market is as extended as as the 0:22:03.320 --> 0:22:07.239 move into our type of stock was, is as that 0:22:07.320 --> 0:22:17.199 move happens, we start, Uh, we're freezing up a little bit. 0:22:17.280 --> 0:22:21.879 Let's see if we can get Cathy back. That's okay. 0:22:22.320 --> 0:22:24.960 Innovation it's happening, but not always when it comes to that. 0:22:25.040 --> 0:22:28.520 The virtual conversation go ahead, and you're talking about Apple. 0:22:29.480 --> 0:22:32.520 So Apple was one of our cash like instruments. It's 0:22:32.560 --> 0:22:37.560 an innovative company. Uh, it's in in in the innovation zone, 0:22:37.880 --> 0:22:41.919 but it's characteristics are very defensive. So we will add 0:22:42.000 --> 0:22:47.200 names like Apple, the things Apple, Google, Facebook, we will 0:22:47.240 --> 0:22:53.000 add those, uh, add to those positions or even reintroduce 0:22:53.080 --> 0:22:56.720 those stocks as a bull market our our portfolios. We're 0:22:56.760 --> 0:22:58.919 up a hundred and fifty. We knew there was going 0:22:58.920 --> 0:23:01.159 to be a correction and we just wanted to have 0:23:01.320 --> 0:23:05.320 very liquid stocks. Apple is a great company, is going 0:23:05.359 --> 0:23:08.560 to do fine. Uh, it's a fang. It's in a 0:23:08.560 --> 0:23:12.800 lot of portfolios. We are all about the next fangs, 0:23:13.200 --> 0:23:15.840 but we will use the existing thangs. If you see 0:23:15.880 --> 0:23:20.120 they are acting very defensively, become a defensive group. So 0:23:20.160 --> 0:23:23.520 we will fold them in increase them. When we see 0:23:23.520 --> 0:23:25.840 a move like we saw last year. When we see 0:23:25.840 --> 0:23:28.679 a decline like the one we're seeing now, we're seeing 0:23:29.240 --> 0:23:32.720 much higher returns from the other stocks in our portfolio. 0:23:33.760 --> 0:23:37.160 You know, you're talking about um kind of value and cyclical, 0:23:37.280 --> 0:23:40.240 And I'm curious, are there any value and cyclical strategies 0:23:40.320 --> 0:23:42.439 right now that you guys have identified as one you 0:23:42.480 --> 0:23:49.639 want to pursue. Well, in our space strategy r k X, 0:23:50.160 --> 0:23:54.200 you'll find a lot of value oriented stocks. Uh. Many 0:23:54.240 --> 0:23:57.760 people are surprised to see dear for example, in there, 0:23:58.080 --> 0:24:01.520 And what they don't understand is thanks to satellite technology 0:24:02.160 --> 0:24:05.800 and UH. And and that the increase in the number 0:24:05.840 --> 0:24:08.919 of satellites out there and the and the precision that 0:24:08.960 --> 0:24:13.960 we're getting from them, we are now enabling precision agriculture 0:24:14.440 --> 0:24:21.800 with autonomous tractors and drones. So without without that constellation 0:24:21.880 --> 0:24:24.879 out there, that would not be happening. We think that 0:24:25.040 --> 0:24:30.720 the two biggest applications or are beneficiaries of the space 0:24:31.160 --> 0:24:37.600 race are satellites going to enable mobile connectivity or connectivity 0:24:37.640 --> 0:24:41.760 around the world, broadband conductivity. It is really hard for 0:24:41.840 --> 0:24:44.200 us to imagine that three billion people in the world 0:24:44.440 --> 0:24:47.800 have no access to the Internet or broadband. This is 0:24:47.840 --> 0:24:51.800 going to enable that satellites and also farming. UH. And 0:24:51.840 --> 0:24:54.080 the other thing we think is is going to happen 0:24:54.240 --> 0:24:58.560 much sooner than space tourism or it will be a 0:24:58.640 --> 0:25:02.800 much bigger deal into of revenue generation is hypersonic flight. 0:25:02.880 --> 0:25:08.000 So any aerospace company focused on hypersonic flight we're interested in. 0:25:08.320 --> 0:25:12.040 And there they tend to be the coasts you mentioned earlier. 0:25:12.119 --> 0:25:14.760 There have been people who have been very vocal and 0:25:14.840 --> 0:25:17.600 public fans of you, and then some now have become 0:25:17.640 --> 0:25:22.000 your critics or they criticize you know, having a younger investment, 0:25:22.280 --> 0:25:25.680 and you know a group of analysts, your analyst team, 0:25:25.720 --> 0:25:29.720 what do you say to them? I would say, that's 0:25:29.720 --> 0:25:35.359 our secret weapon. Those analysts have their uh, their education 0:25:35.400 --> 0:25:38.520 and their feet in the New world. The most seasoned 0:25:38.600 --> 0:25:42.680 analysts healthcare analysts on Wall Street, and God bless them, 0:25:42.680 --> 0:25:45.560 they've been great at what they do anything. They know 0:25:45.640 --> 0:25:47.920 all the code words and how to decipher them from 0:25:47.960 --> 0:25:52.080 the FDA, but they probably haven't experimented with Cristopher gene 0:25:52.240 --> 0:25:56.479 editing like our genomic analysts have, and they don't have 0:25:56.720 --> 0:26:03.040 advanced degrees in cognitive computing, including bringing behavioral science into it. 0:26:03.440 --> 0:26:07.480 So uh, many of our analysts are coming to us 0:26:07.520 --> 0:26:13.160 directly from college, and they are fully equipped with domain 0:26:13.280 --> 0:26:17.040